All companies in India if they have even a single employee would have to register for professional tax in the country. This is true for local owned and foreign owned companies as well as either incorporated or non-incorporated companies such as a sole-proprietorship. Professional tax registration is mandatory only if you have an employee. Assuming all foreign companies that enter India would have at least one staff member, it is safe to assume that all companies entering India would have to obtain the professional tax number after incorporation.

Professional tax is related to the employees of a company. Basically depending upon their income, a very small amount is to be deducted each month from the salary and at the end of the financial year; the collected professional tax amount must be paid to the concerned tax authorities for each of the employees in the company. Hence the company in India would have to apply for a professional tax number once and when they are issued their registration certificate along with a unique professional tax number, this must be quoted when submitting the required tax amount at the end of the financial year.

Just as matters and procedures related to India company formation could differ depending upon which state the company is located in India, professional tax registration would also differ. Each state may have its own set of rules, guidelines and the amount to be deducted from the employee’s salary. For example in the state of Maharashtra, where India’s financial capital Mumbai is located, the maximum professional tax that can be deducted from someone’s salary is Rs.200. Of course since each state is allowed to create its own guidelines as far as professional taxes are concerned, not all states in India have it mandatory to register for professional tax.

Hence companies in India would have to find out on their own whether their state requires professional tax registration and if they do, companies need to ensure that those taxes are paid on time every year. It becomes an important part of the ongoing compliance requirements to pay professional taxes on time and deduct the correct amount from an employee’s salary.

As far as employee’s are concerned, the professional tax deducted by their employers are fully tax deductible and their overall income tax obligation would come down as per the amount of professional tax already paid. For incorporated companies in India, professional tax can be only one of the several deductions to be made each month from an employee’s salary and to be paid to the government agencies directly.